Can Amgen Stock Thrive on Beating Melanoma?

Amgen's stock has surged more than 44% over the past year, but while this big biotech has rewarded investors handsomely with a solid performance lately, it's always in the hunt for the star pharmaceuticals of the future. The company reported solid clinical data from its developmental melanoma drug talimogene laherparepvec, or T-Vec, over the weekend as Amgen looks to forward the drug toward an eventual application.

Is melanoma really a market where Amgen can thrive, however? This company's stock has blown up on blockbusters such as immunology drug Enbrel and neutropenia-fighting Neupogen, but T-Vec's facing a different sort of competitive landscape. Could T-Vec provide Amgen's next blockbuster? Let's take a look at the latest from this promising treatment.

Hitting the right marksFirst, let's check out the latest with T-Vec. Amgen released interim phase 3 trial data for the drug over the weekend at the American Society for Clinical Oncology conference, which showed a 21% improvement in survival for patients as compared to a traditional therapy. T-Vec also proved to significantly reduce tumor growth as compared to standard therapies, an important point that will help Amgen's quest to get this drug approved.

Amgen will report final data later in the year, but this interim report looks promising. Analyst Michael Yee from RBC Capital Markets predicted that T-Vec would need to show a 15% improvement in survival over standard treatments in order to garner approval. So far, so good.

Amgen's stock didn't react so positively to the news, however, as shares fell 1.4% on Monday. Are investors in the right, here, or is T-Vec's potential understated?

First off, the melanoma drug market isn't huge -- yet. Research firm Decision Resources said last year that Roche's Zelboraf and Bristol-Myers Squibb's Yervoy, two immunotherapies approved in 2011 to treat melanoma, accounted for two-thirds of the malignant melanoma drug market. Yervoy picked up more than $700 million in sales last year, but Zelboraf only recorded around $250 million in revenue. That's not a giant market to capitalize on.

Additionally, T-Vec has more competition hurrying into the market. GlaxoSmithKline's melanoma drugs Mekinist and Tafinlar were recently approved by the FDA, and analysts project that the two drugs could reach a combined $600 million in sales in 2016. Additionally, Merck's lambrolizumab hasn't been approved by regulators yet, but the drug proved to reduce tumors in 38% of patients in early-stage trial results published at the ASCO meeting. Merck likely won't have that drug approved any time soon, but it's one to watch for Amgen investors or those taking note of the melanoma space.

Still, analysts are confident in T-Vec's success should Amgen clinch regulatory approval. Early peak sales projections vary, but at least one analyst has estimated peak sales of $500 million for the drug.

That's not quite blockbuster status -- particularly for a company that reported sales of more than $16.6 billion last year -- but $500 million will help mitigate the patent losses of some of Amgen's top sellers. Teva Pharmaceuticals has already begun marketing a generic biosimilar of Neupogen in Europe, and the company will be able to launch its version of the best-selling drug in the U.S. starting in November of this year. While Teva's version of Neupogen has captured little market share so far, even a slight gain on Amgen's product can cut into the drug's revenue, which along with Neulasta totaled more than $5.3 billion last year.

Another solid portfolio gainInvestors shouldn't expect ground-breaking sales from T-Vec, but the drug's preliminary results make me confident that Amgen's melanoma treatment will be approved as long as it can translate this interim data to its final results. The $500 million in peak sales might not send Amgen's stock surging, but it's another addition to this company's sturdy pharmaceutical portfolio that will help reduce any future losses from patent expirations. T-Vec may not be the catalyst that will spark a soaring stock, but it will help keep Amgen's financial foundation stable -- and for long-term investors, that's nothing to fret.

Can Merck beat the patent cliff?Merck's looking to compete in a melanoma market that's garnering attention, but this company's facing its own sizable demons. This titan of the pharmaceutical industry stumbled into 2013 and continues to battle patent expirations and pipeline problems. Is Merck still a solid dividend play, or should investors be looking elsewhere? In a new premium research report on Merck, The Fool tackles all of the company's moving parts, its major market opportunities, and reasons to both buy and sell. To find out more click here to claim your copy today.